5 Ways To Get Financing For Your Investment Property

You’ve decided to get into the investment property business and need to get financing to help you buy your first property. Here are some tips to help you get in the right shape to make your investment the best it can be.

Down payment

First, you will need to have a sizable down payment. When buying a home you can get around the down payment issue by agreeing to pay mortgage insurance for a specific period of time. For investment properties there is no option for mortgage insurance. That means that you will need at least 20% down for a traditional mortgage. Higher amounts for down payments can actually help in the long run since you may qualify for better, lower interest rates.

Credit score

You will also need to be what lenders call a strong borrower. That means a good credit score. Your credit score has the biggest impact not just on getting a loan, but also better loan terms. If your credit score is below a 740 you will be less likely to get better terms, such as interest rates.

Have money in the bank

To keep that better interest rate, you’ll probably need to pay a fee that will probably range from a quarter of a point to two points. That can be a substantial fee. A “strong borrower” also will have money in the bank besides the down payment. Money for things like personal and investment related expenses for at least six months is recommended and will be something banks will look at in their decision making process.

Use a smaller bank

Look at smaller banks as opposed to big ones, especially if your down payment isn’t quite where it should be. Smaller banks will have a bit more flexibility in lending terms and will most likely know the local markets better. They may also be happier to invest locally.

Private loan financing

Financing can also be found through private loans. Some private sources are peer-to-peer lending sites like Prosper.com and LendingClub.com, which connects investors with individual lenders. If you don’t have a long track record with investment properties prepare for some push back from these sources. Individuals may just be a bit more conservative in lending their own money and have more requirements to do so.

Investing in real estate can be a solid way to make money. Just get yourself in the best financial place in order to do so.